Communicating with Clients in Difficult Times

At the time of this writing, the financial markets are facing
a turbulent time, but they have been there before. Markets—all
markets—go up and down. Sometimes the fl uctuations feel worse
than others.

The important thing to remember is that
markets recover. It is up to tax advisers to remind their
clients of that point and to do so by putting this market
decline in historical perspective.

Revisit Client
Plans

Over the years, studies have shown that clients
continue to regard their CPAs as their most trusted advisers.
This trust is well deserved and well earned. Clients count on
these trusted advisers for counsel in turbulent times, offering
practitioners the opportunity to discuss at least the following
three concepts with their clients:

Is the client’s plan still valid or does he or she need to
make a change? In turbulent times, it is important to
revisit the client’s original financial goals and the time
horizon for achieving them and to review market results in that
context. Overreaction can be just as dangerous as inaction in
these situations. Finding the right balance is not easy. The
objective approach is to first and foremost revisit the
assumptions behind the financial plan and investment strategy
and make sure they are still valid.

What is the client’s exposure to risk and should anything be
done to minimize risk? Having a diversifi ed portfolio
should help to mitigate some of the risk of being overexposed to
individual stocks or sectors that have faced signifi cant
declines. In addition, based on a client’s goals, time horizon,
and risk tolerance, a portion of the portfolio may be allocated
to fi xed income to minimize losses. But risks go beyond the
investment market— practitioners must discuss individual
clients’ situations and determine what a decline means for them,
their businesses, and their personal and fi nancial goals.

What are the reasonable options available? Even if the
situation is bad, that does not automatically imply that changes
must be made. Clients must consider what the alternatives are
(e.g., other asset classes or types of investments) and whether
those alternatives are a reasonable response to the problem. In
many cases, a walkthrough of alternatives, if nothing else,
presents the client with an informed overview and a chance for
change. More often than not, clients choose to stay the
course.

Related Opportunities

There are other
issues related to the adviser-client relationship that
practitioners should also discuss.

Tax planning: The extent of the losses generated in
investment accounts is something that advisers should talk about
in the context of the client’s overall tax picture. Planning can
ensure that clients use their losses effectively.

Financial stability: The fi nancial stability of a
client’s broker-dealer or custodian is of paramount importance,
especially if client holdings include instruments directly
related to the broker-dealer’s fi nancial strength. This could
lead to discussion of the protections that various accounts
have, such as FDIC and SIPC insurance protection.

Estate planning: Turbulent times give the adviser
another opportunity to revisit with the client any previously
discussed goals and objectives regarding estate planning.
Financially uncertain times may present planning opportunities
in this area as well.

Communicating with clients during
volatile markets is one of the most important actions an adviser
can take. It can turn an unsettling time into a period of calm
and reassurance for clients. Clients will also get a sense that
they are important to their adviser because the practitioner has
taken the time to communicate directly with them.

Bringing Value to the Client Relationship

During
these times, tax advisers can bring additional value to client
relationships. Tax practitioners understand the circumstances
and they understand their clients. Practitioners need to be
proactive and reach out to clients in uncertain times. Whether
it is by e-mail, phone, or a face-to-face meeting, initiating
contact with clients is an important fi rst step.

Tax
advisers can help clients assess their risk tolerance level and
can analyze different scenarios, giving them not only best-case
but worst-case scenarios. Advisers can educate clients about
their portfolios and even help them reallocate assets if that is
what is needed. Clients will appreciate this immensely.

Tax advisers can also add value to client relationships by
educating them on issues that may be concerning them. Is their
money safe? Are their investments secure? Ask clients if they
would like assistance in reviewing cashflow. This process of
reaching out and discussing clients’ future goals will
definitely reassure them by putting things in perspective.

Finally, practitioners can use times like this as a marketing
opportunity. Advisers who demonstrate that they have their
clients’ best interests at heart will expand their
practices.

Conclusion

The trusted, knowledgeable
adviser must be proactive. Clients trust their CPAs and the
advice, information, and education they provide. Trying times
call for action and education. The results of these efforts will
be beneficial and rewarding to both clients and practitioners.
An informed client is an empowered client, empowered clients are
satisfied clients, and satisfi ed clients are the best source of
referrals and new business.

Editor Notes

Michael David Schulman is the owner of Schulman CPA, an
Accountancy Professional Corporation, in New York, NY. Michael
Eisenberg is the owner of Eisenberg Financial Advisors in Los
Angeles, CA, and is a member of the AICPA’s Financial Literacy
Commission. For further information about this column, contact
Mr. Eisenberg at michael@eisenbergfinancial
advisors.com.

The winner of The Tax Adviser’s 2014 Best Article Award is James M. Greenwell, CPA, MST, a senior tax specialist–partnerships with Phillips 66 in Bartlesville, Okla., for his article, “Partnership Capital Account Revaluations: An In-Depth Look at Sec. 704(c) Allocations.”

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